Incident: On October 18, the company released its 2024 three-quarter report. In the first three quarters, it achieved operating income of 6.34 billion yuan, +10.4% year over year; realized net profit of 1.726 billion yuan, +73.7% year over year, and realized net profit without return to mother of 1.718 billion yuan, or +79.4% year over year. Among them, 2024Q3 achieved revenue of 2.23 billion yuan, +1.1%/+11.8% year-on-month; realized net profit of 0.648 billion yuan, +67.5%/+13.0% year-on-month, respectively; realized net profit of 0.659 billion yuan without return to mother, +76.1%/+17.2% year-on-month, respectively.

Export demand for semi-steel tires is strong, and sales of all-steel tires are gradually recovering. According to data from the General Administration of Customs, from January to August this year, China's automobile tire export volume was 5.3 million tons, up 5.2% year on year; the export value was 90.8 billion yuan, up 6.9% year on year. Tire consumption is in high demand. In terms of operating rate, as of October 17, 2024, the operating rate of steel tires was 79% this week, maintaining a high level. The operating rate of all-steel tires was 61%, achieving a significant recovery. From January to September 2024, the company produced 24.2431 million tires, +14.05% year-on-year; among them, semi-steel tires produced 23.5585 million bars, +13.73% year-on-year; all-steel tires produced 0.685 million bars, +26.10% year-on-year.

Sales of 23.3581 million tires were completed, +7.88% YoY; of these, sales of semi-steel tires were 22.6815 million bars, +7.33% YoY; sales of all-steel tires were 0.6765 million bars, +30.10% YoY. Q3 tire production was 8.1565 million bars, +5.54% YoY, +1.82% month-on-month; of these, half-steel tire production was 7.963 million bars, +6.36% YoY, +1.37% month-on-month; all-steel tire production was 0.1939 million bars, -19.71% YoY and +24.86% month-on-month. Q3 tires sold 8.261 million bars, +3.64% YoY, 10.29%; among them, semi-steel tires sold 8.0694 million bars, +4.34% YoY, +10.06% month-on-month; all-steel tires sold 0.1911 million bars, -19.33% YoY and +21.19% month-on-month.

Profitability continues to increase, and the pressure on shipping costs has eased. In 2024Q1/Q2/Q3, the company's gross margin was 31.32%/35.27%/39.52%, respectively, up 8.98pp/ 12.82pp/12.03pp year-on-year, and 8.88pp/3.94pp/4.25pp, respectively. Net interest rates were 23.82%/28.76%/29.07%, up 8.72 pp/9.81 pp/11.52 pp year on year, and 4.87 pp/4.94 pp/0.31 pp, respectively. Q3 Gross profit margin and net profit margin reached record highs. In terms of expenses, financial expenses for the first three quarters of 2024 were -47.1947 million yuan, a decrease of 47.656 million yuan compared with the same period in 2023, mainly due to an increase in interest income. Income tax expenses for the first three quarters of 2024 were 0.164 billion yuan, +122.24% year over year, mainly due to an increase in the total profit of domestic factories. In terms of raw materials, according to our statistics, the average values of the 2024Q1/Q2/Q3 tire raw material price index were 115.8/123.3/129.5, respectively, up 0.4%/6.5%/5.0% from the previous month. The company's Q3 sales increased, the scale effect diluted fixed costs, and maintained a high level of profitability. As of October 21, 2024, the raw material price index was 122.8, down 5.1% from the 2024Q3 average. It is recommended to continue to monitor future raw material price trends. In terms of sea freight, European shipping rates rose sharply in May-June, and are now gradually declining. The pressure on shipping costs and shipping pressure on related companies has eased. It is recommended to pay attention to the sea freight rate trend.

The Morocco project was officially put into operation, and the intended orders have already exceeded the planned production volume for next year. The company's semi-steel tire products continue to be in short supply in the European and American tire markets. The company is actively promoting the Moroccan factory's annual production of 12 million high-performance cars, light truck radial tire projects, and Spain's 12 million high-performance car and light truck radial tire projects to meet growing market demand. According to the company's WeChat account, the company's Morocco plant was officially put into operation on September 30, 2024. Large-scale production will be achieved in 2025. It is expected to release 6-8 million bars of production throughout the year, and achieve full production of 12 million bars by 2026. Currently, the intended orders have far exceeded the planned production volume for next year. The completion and commissioning of the Morocco plant is expected to contribute an important increase to the company's performance next year.

Profit forecasting and investment advice. The compound growth rate of the company's net profit to mother is expected to be 30% in 2024-2026. Considering that the company's profit level is ahead of its peers, overseas base construction is progressing steadily, and future order volume is expected to grow at a high rate, maintaining a “buy” rating.

Risk warning: Risks such as fluctuations in raw material prices, international trade frictions, projects under construction falling short of expectations, and exchange rate fluctuations.